Targeted investment in innovation and start-ups, super agility and nerve-shredding patience
We’re sitting across the table from Ivan Menezes. His office is littered with bottles, from Ketel One Vodka and Johnnie Walker Scotch, to Tanqueray gin and Haig Club whisky. All of their seals remain unbroken – but Menezes has every reason to crack one open. His company, Diageo, has just been named Britain’s Most Admired Company.
The country’s largest producer of premium beers and spirits has gained maximum respect from its peers by holding to a comprehensive long-term strategy and refusing to be blown off course – whether by the vicissitudes of global markets, Brexit-related uncertainty, or changing consumer attitudes to alcohol and health.
"Great companies demonstrate the capacity to suffer. To take the knocks but stay the course and not get buffeted by the short-term," says chief executive Menezes.
This powerful sense of corporate perspective derives in part from the nature of products and brands in Diageo’s portfolio, he says. "We’re in a business where the youngest whisky in a Johnnie Walker Black Label bottle, for example, was distilled before the financial crisis [in 2008]. The Guinness business is over 260 years old.
"Obviously you have to perform in the short term, but it’s equally important to ensure that you are building a sustainable business for the long term too."
It seems to be working well – five years after Diageo last took the crown for Most Admired Company (it has won on three previous occasions: 2008, 2012 and 2013) it’s riding high again, with a strong financial performance in the year to June which saw operating profits up 3.7 per cent to £3.7bn on sales up 0.9 per cent to £12.2bn. And in addition to the overall award it has also won the Most Admired category awards for Quality of Management and Corporate Governance.
Since taking over the top job from his swashbuckling, deal-driven predecessor Paul Walsh in 2013, a cheerful but determined Menezes says he has been "rewiring" the company to make it fit for a future in which speed and manoeuvrability will only become more important. No small task in a business which employs 30,000 people across 180 countries and is, as Menezes proudly claims, the leading corporate contributor to the UK’s balance of payments in terms of goods exported.
"I’ve been in business for 35 years in the consumer space, and the pace of change, right now, in technology, how people shop, how they socialise, the cues of status, they’re all changing very rapidly," he says.
"A key difference for me is creating a culture of ownership, being restless, agile and customer centric. Our job is to think about the next generation of adults that will come into the market, to keep vibrant and aspirational for that generation."
Right now much of the vibrancy in the established Western markets is coming from gin – where once there would have just been a solitary bottle of Gordon’s on the rack, every bar is now happy to boast a plethora of exotic upmarket gins, all of them flavoured with everything from cucumber to rhubarb.
So gin sales are booming, but to really ride a trend like that you have to be light on your feet or the moment will pass. Menezes cites the example of Diageo’s latest hit, Gordon’s Pink, infused with raspberries and strawberries, as an example of how the business can now move much more quickly than it could in the past.
"We introduced it in Spain and it was clear in two or three months that it was doing very well. We made the call to roll it out across the UK and Europe and we did that in a matter of weeks. A few years ago it would probably have taken us a couple of years."
Such urgency calls for a fundamentally different attitude and the balancing of new risks, he adds. "If you move at speed you will get things wrong. What’s important for us to recognise is that it’s better than striving for perfection and getting there too late."
It also requires the insight to pick up on where the next big thing is coming from, so Diageo has been busy on that side of the business too. "You really need to keep your finger on the pulse of the consumer and that’s another area of the company that we have rewired substantially.
"What we track and the people we have in our marketing and innovation teams are now far more sophisticated. We’ve built a platform of data and analytics now which I’d say is one of our distinctive advantages."
And if he has been dialling back on the sort of big ticket M&As Diageo was known for in the noughties, the firm’s appetite for targeted investment in innovation is greater than ever thanks to its new corporate venturing arm, Distill Ventures. It’s made 20 or so early-stage investments in drinks start-ups, including a no-alcohol distilled spirit called Seedlip and a new vermouth brand, Belsazar.
The entrepreneurs get backing and hugely valuable corporate support, while Diageo gets to pick up a few tips of its own on agility and ownership. "It’s been a real source of learning for us – the insights we get from these entrepreneurs is extraordinary," he says.
If there’s a whiff of the satisfaction that comes from a long-cherished plan coming together in his tone, it’s hardly surprising. There were plenty of bumps along the way.
"In my first few years as CEO, we had some tough challenges, it was a period where people were wondering what we were up to and saying all kinds of things about us, but I was clear in my mind that we had to hold our nerve," he says.
Some of those challenges would have been enough to unseat a less determined rider. A huge crackdown on extravagant corporate gifts by the Chinese government in 2013 seriously damaged sales of top-end whisky in one of the firm’s fastest-growing markets. The economy in Venezuela – whose people are some of the most enthusiastic consumers of scotch in Latin America – collapsed. And the £1.8bn takeover of United Spirits in India, completed in 2014, ran into a storm of expensive troubles; although the business is now performing well, a lawsuit against United’s former chairman Vijay Mallya remains ongoing.
But Menezes and his team remained upright in the saddle. "We never lost sight of what we wanted to create, the performance, consistency and reputation that we wanted to build," he says. Now Diageo’s Chinese business is back on its feet, and while the same cannot be said of Venezuela just yet, he remains confident that that market, too, will recover in time.
"We kept our company where lots of people pulled out. The business is tiny at the moment because the Venezuelans don’t have the dollars to buy whisky. But it is there for when the tide turns."
His determination to make Diageo a better company tomorrow than it is today also feeds into the firm’s engagement with wider issues like rising public concern over excessive drinking.
"The key positive trend we are seeing is that young people now have a much more responsible relationship with alcohol," he says, adding that Diageo’s premium branding plays well with what is a responsible, ‘drink less but drink better quality’, message.
But he does acknowledge the need to continue tackling the risk of excessive consumption where it does occur, and to protect the reputation of both Diageo and the industry as a whole by playing a leading part in addressing the problem.
"We absolutely do not want to see excessive consumption of alcohol, and we want all our employees to be really proactive ambassadors for our ‘drink positive’ message. We need to shape our own destiny by making a very sincere and determined effort to reduce alcohol harm."
Above all, he says, the future of Diageo – and its chances of adding further to its impressive tally of Most Admired Company trophies – will be secured by the behaviour of the people who work for it.
"You need the best talent – people who are really skilled at what they do. But you also need people with character and integrity. I’d say that’s the most important foundation for this business."
After all, great companies may know how to suffer, but they also know how to take their just rewards. Cheers.
Witty marketing, slick touchscreen ordering and continuous revenue growth
Since its arrival in the UK way back in 1974, the home of the Big Mac has earned a place in the hearts of Britain’s millions of burger lovers but also right at the top of the nation’s corporate menu. Taking runner-up overall and also the Criteria Awards for attracting and retaining top talent and capacity to innovate, 2018 is McDonald’s best-ever Most Admired result. Witty marketing, slick touchscreen ordering and new products like the Signature range have helped it take on ‘gourmet’ rivals such as Five Guys and Shake Shack, and win. McDonald’s has posted no fewer than 48 consecutive quarters of rising revenues in the UK, and retained 10 per cent of the nation’s £40bn informal eating sector.
3. Croda International
From lipsticks to lubricants, Croda’s profits are booming
Goole-based surfactant specialist Croda slides back into the top 10 again, with highlights of the year including adjusted pre-tax profits for the first half up 7.7 per cent to £175m on revenues of £703m, the acquisition of crop science business Plant Impact and continued expansion of its operations in Brazil. Croda’s slippery products are vital components of everything from lipstick and shampoo to industrial lubricants and water treatment processes. Indie cosmetics brands are a growing market, and CEO Steve Foots is also boosting its pipeline of novel ingredients with the purchase of Prince Edward Island-based marine biotechnology outfit Nautilus.
4. Reckitt Benckiser
Long-term focus drives sales of high margin consumer healthcare products
Recognised for having built an enviable global position thanks to class-leading brands ranging from Dettol and Durex to Nurofen, Harpic and Cillit Bang, RB – also known as Reckitt Benckiser – cleans up in Most Admired this year, too. It’s jumped 24 places to fourth overall, is top of the health and household sector and also takes the criteria award for Quality of Marketing. CEO Rakesh Kapoor has left last year’s controversy over his £23.7m renumeration package behind, taking an £11m pay cut this year and redoubling efforts to boost sales of higher-margin consumer healthcare products. Production problems at its Dutch baby milk factory contributed to a lower than expected rise in Q3 revenues – up 2 per cent to £3.1bn – but RB earns the respect of peers for adherence to its long-term strategic goals.
Consolidation into four key product areas helps boost sales
Big pharma businesses are often likened to supertankers for their reluctance to change direction, but AstraZeneca shows that they can be surprisingly nimble too. CEO Pascal Soriot has sold off almost $1bn of non-core treatments to boost R&D in four key areas – cancer, cardiovascular, renal and respiratory diseases. It seems to be working: its oncology portfolio – which includes lung cancer drugs Tagrisso and Imfinzi – is now the firm’s bestselling line. Strong performance from a string of promising new drugs also contributed to its first quarter of sales growth in four years, up 8 per cent in Q3 to $5.3bn. AstraZeneca has also bought a 9.8 per cent stake in French immunotherapy outfit Innate, although Soriot has said that AZ remains committed to the UK despite Brexit.
6. McLaren Automotive
Racing-car technology drives profits for BMAC newcomer
The fact that Elon Musk – founder of Tesla, the tech-disruptor’s car of choice – also drives a McLaren tells you all you need to know about this BMAC newcomer’s brand positioning. It shares an owner – and its Woking HQ – with the eponymous F1 team and is all about racing-car-derived tech you can use on the road. But with ex-Ford executive Mike Flewitt in the driving seat, McLaren’s road car operation also has the business underpinnings to match. Founded in 2011, it’s been profitable from day one thanks to models like the 570S, which despite being in the entry-level range can still do 200mph and costs £145,000. McLaren also takes the category award for Inspirational Leadership.
7. BMW Group UK
Winning combination of German management and British know-how
A high-octane inaugural Most Admired performance from BMW UK, whose Oxford-built Mini is the seventh best-selling model in the country, not far behind more quotidian (and cheaper) rivals from Ford and Nissan. Quite an achievement for a brand better known for its upmarket luxury motors. It’s also proof that the once-controversial marriage of German money and management with British manufacturing know-how has matured into a winning combination. BMW UK also takes the criteria awards for Long-term Value Potential and Financial Soundness, a vote of confidence from its peers that this leader of the UK automotive sector is expected to thrive despite Brexit uncertainties.
Commitment to London and the FTSE strengthens Anglo-Dutch giant
Last year’s overall winner maintains its record of the most top 10 finishes of any company in BMAC history. An even more impressive reputational performance given the will-they-won’t-they drama over whether the PG Tips-to-Pot Noodle maker was about to relocate its HQ from London to Rotterdam. Having initially decided to ditch its Anglo-Dutch dual listing in the wake of last year’s defeated takeover bid from Kraft, Unilever CEO Paul Polman eventually relented in the face of shareholder concerns over loss of access to FTSE 100 funds. Cue celebration by Marmite-loving investors up and down the country.
9. Coca-Cola European Partners
Making strides in sustainable packaging, the fight against obesity and fizzing sales
Sugar tax or no, the long hot summer has boosted the consumption of cold drinks and the world’s largest independent Coca-Cola bottling operation has been fizzing as a result. Q3 sales were up 11.5 per cent to €3.3bn and operating profits for the first nine months of 2018 up 4.4 per cent to €1.1bn. Based in Uxbridge with 23,500 employees across 13 countries, it sells 2.5 billion cases annually – not only of Coke but also Fanta, Kia Ora and Lilt among others. Mindful of good corporate citizenship, Coca-Cola European Partners is a leader in sustainable packaging and is also doing its bit in the fight against obesity, pledging that half its sales will come from sugar-free or low calorie options by 2025.
Deft handling of two big deals wins praise for CEO Walmsley
Under Emma Walmsley, its energetic new CEO – and joint winner of our Britain’s Most Admired Leader award (see pages 32-37) – GSK has won plaudits this year for its deft handling of two big deals. One being the decision not to bid for Pfizer’s overpriced consumer business, the other being to buy out its own partner Novartis’s instead. The UK’s largest drug maker paid £9bn to the Swiss company to take full control of their joint portfolio, and wins the Most Admired Criteria award for Effective Use of Corporate Assets to boot. GSK’s iconic Horlicks consumer healthcare business is being sold to help fund the deal – a high-profile divestment expected to realise up to $3bn that is attracting interest from the likes of Unilever, Nestle and Coca-Cola.
Image copyright: Diageo